Loan write-offs more than triple in H1
In the first six months this year, banks have written off loans more than three times the amount of the same period last year.
According to the data from the Bangladesh Bank, Tk4,513 crore of loans were written off between January and June, marking a 247% year-on-year rise.
"The increasing amount of defaulted loans in banks is directly leading to a corresponding increase in written-off loans," said Zahid Hussain, a former lead economist at the World Bank's Dhaka Office.
"There is a growing trend of borrowing from banks without repayment, which is contributing to the increase in defaulted loans."
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The economist pointed out that banks have the opportunity to understate default loans by removing the worst-quality defaulted loans from their main balance sheet.
According to the rules, a bank can write off only those loans or investments that have a minimal chance of recovery and have been classified as "bad" or "loss", which is considered the worst type of classified loan, for at least three years.
These written-off loans are stored in a separate ledger book. Banks, however, cannot write off loans and investments partially. The practice of loan foreclosure has been in effect since 2003, as per the central bank's policy.
Banks are required to maintain provisions ranging from 0.25% to 5% of their regular loans, and for defaulted loans, the provision varies from 20% to 100%. But, in the case of a write-off, the entire loan amount must be kept as a provision.
According to central bank data, the total written-off loans amounted to Tk67,721 crore by the end of June this year. From 2003 to 2022, Tk20,828 crore has been recovered, resulting in net written-off loans of less than Tk47,000 crore.
Defaulted loans rose by around Tk24,418 crore in the April-June quarter of this year, the central bank said. The total default loan in the banking sector stood at Tk1,56,039 crore in June, which was 10.11% of the total outstanding loans. That is, if written-off loans are considered, the default loans of the banking sector will be more than Tk2 lakh crore.
Apart from this, as of June 2023, Tk189,668 crore is stuck against 72,891 cases in the money-loan courts. Most of these loans stuck in the case are default and written-off loans.
Many of these cases have been going on for years. As a result, on the one hand, there is no progress in debt recovery, and the number of defaulters is increasing.
